Showing posts with label Global Taxation. Show all posts
Showing posts with label Global Taxation. Show all posts
Sunday, November 23, 2008
Monday, December 03, 2007
Sunday, September 16, 2007
MEXICO'S ANTI-GROWTH TAX POLICY
The USAToday has published an article describing the populist assertions of Mexican president Felipe Calderon who recently annoucned the launch of aggresive tax hike to raise tax revenue.
Enhanced through the rethorics of populism, Mexian president wants to increase Mexico's tax revenue by one third, roughly $35 billion a year. Among fresh tax policy proposals an extensive corporate income tax based on firm's income from corporate activity can be traced as well as giving tax breaks to state enterprises (Pemex), 5,5 percent gasoline tax and government requirement levied on banks, claiming to deduct 2 percent tax on desposits exceeding the amount of $1,800 USD monthly.
One could claim that despite a relatively low fiscal burden in the share of the GDP and particularly low government spending, Mexico's overall tax revenue equals 10 percent of the GDP, and thus concluding that reducing the aggregate tax burden does not make any sense. However, this particular assertion hardly entails any sufficient arguments and data analysis.
First, corruption in Mexico is perceived as significant. The cost attached to corruptive officials, institutions and politicians negatively affects economic performance and openly enables seeking ways and channels to adopt tax evasion. The negative-side effect of corrupted tax system is that a mantling establishment of the bureaucracy inclines towards seeking additional revenue via loopholes, deductions, exemptions and tax breaks.
Second, despite a moderate degree of economic liberty, Mexico weakly performs in the areas which are essential to sound framework of economic peformance such as the extensive corruption net and discriminatory investment framework. According to World Bank, paying taxes takes 552 hours in Mexico compared to the OECD average of 202,9 hours. This particular indicators purely reflects the complexity and failure of Mexican tax system. Under such conditions, numerous investors prefer to avoid taxes since getting rid of government regulation and directives is less costly than complying with inefficient and onerous tax system.
Here is a brief data on Mexican macroeconomic performance.
The assumption that additional tax revenue measures would induce government's ability to pursue fair redistribution to reduce poverty is false regarding the empirical aspects of income redistribution and research observations on the growth-correlated tax system. Fighting poverty through the prism of government intervention usually returns the opposite results. Instead, there has been much empirical outcome saying that trade liberalization and openness induce poverty reduction. In addition, deregulated labor market and growth-friendly entrepreneurial framework also boost productive behavior which is the ultimate way to avoid and reduce poverty instead of relying on rent-seeking government and tax bureaucracy.
Enhanced through the rethorics of populism, Mexian president wants to increase Mexico's tax revenue by one third, roughly $35 billion a year. Among fresh tax policy proposals an extensive corporate income tax based on firm's income from corporate activity can be traced as well as giving tax breaks to state enterprises (Pemex), 5,5 percent gasoline tax and government requirement levied on banks, claiming to deduct 2 percent tax on desposits exceeding the amount of $1,800 USD monthly.
One could claim that despite a relatively low fiscal burden in the share of the GDP and particularly low government spending, Mexico's overall tax revenue equals 10 percent of the GDP, and thus concluding that reducing the aggregate tax burden does not make any sense. However, this particular assertion hardly entails any sufficient arguments and data analysis.
First, corruption in Mexico is perceived as significant. The cost attached to corruptive officials, institutions and politicians negatively affects economic performance and openly enables seeking ways and channels to adopt tax evasion. The negative-side effect of corrupted tax system is that a mantling establishment of the bureaucracy inclines towards seeking additional revenue via loopholes, deductions, exemptions and tax breaks.
Second, despite a moderate degree of economic liberty, Mexico weakly performs in the areas which are essential to sound framework of economic peformance such as the extensive corruption net and discriminatory investment framework. According to World Bank, paying taxes takes 552 hours in Mexico compared to the OECD average of 202,9 hours. This particular indicators purely reflects the complexity and failure of Mexican tax system. Under such conditions, numerous investors prefer to avoid taxes since getting rid of government regulation and directives is less costly than complying with inefficient and onerous tax system.
Here is a brief data on Mexican macroeconomic performance.
The assumption that additional tax revenue measures would induce government's ability to pursue fair redistribution to reduce poverty is false regarding the empirical aspects of income redistribution and research observations on the growth-correlated tax system. Fighting poverty through the prism of government intervention usually returns the opposite results. Instead, there has been much empirical outcome saying that trade liberalization and openness induce poverty reduction. In addition, deregulated labor market and growth-friendly entrepreneurial framework also boost productive behavior which is the ultimate way to avoid and reduce poverty instead of relying on rent-seeking government and tax bureaucracy.
Wednesday, September 12, 2007
Tuesday, September 11, 2007
MALAYSIA'S MODEST CORPORATE TAX CUT
Malaysian Prime Minister Abdullah Ahmad Badawi announced another 1% cut in the rate of corporate tax in the Malaysian government budget. In addition, several other measures have been introduced to boost the investment, revenue and capital formation.
By 2009, the corporate tax cut proposal is expected to be reduced by an additional percentage point down to 25 percent. Despite a tax cutting "slow-motion" of slashing the corporate tax rate by 1 percent annually in the last two years, the aggregate corporate tax burden is estimated to reduce. The rate fell by 1 percent to 27 percent this year, and will bring about a further 1 percent cut next year.
Tax news reports that: "...announced a generous package of tax breaks for the investment industry in an attempt to consolidate and build upon
In addition to a mere modification of the tax system, Malaysian government further deregulation stock-broking licensing procedures by allowing the entry to the companies that can source the investment funds.
However, the new tax proposal seems to be discriminatory to international investors as government decided to slash the entry barriers only to investors from Arab countries and the
Thursday, August 30, 2007
THE COST OF TAX HARMONIZATION
The Irish Independent reports about the Charlie McCreevy's resistance to tax harmonization revenue proposals enforced by the European Commission.
The real aggregate tax burden in the EU is very high, both in historical and contemporary perspective. Back in 1980s, German policymakers instituted a 60 percent corporate tax rate. In Sweden, the top individual income tax rate exceeded 90 percent in the early 1980s. After new member state joined the EU, the picture of European economic performance is rather lingering, marred by low output growth, high structural unemployment and high tax rates penalizing the productive behavior.
However, within the EU, there're few examples where competitive pro-growth economic and tax policy significantly helped to boost the economic performance resulted in sound parameters, such as income per capita and wealth created per head. For instance, Ireland set the corporate tax rate at 12,5 percent and has seen a significant inflow of foreign direct investment. Nevertheless, Ireland is now the second wealthiest country in Europe, after Luxembourg according to the GDP per capita. Ireland's tax-to-GDP ratio is 30,8 percent compared to EU27's 37,4 percent. Fiscal sovereignity, the basis that brought the clash of punitive tax rates on corporate and individual income, is the very fundamental source of international tax competition opposed to tax harmonization, where statutory tax rates are set on a cross-national basis.
The fact that the aggregate tax burden of the European economy would increase sharply if tax harmonization efforts were implemented is not the only threat in this respect. Sluggish growth, diminished economic performance of European economies and higher tax rates on productive behavior are certainly among the forefront implications of tax harmonization.
First, high tax burden and output increases are negatively correlated, which means that higher taxes penalize each additional unit of gross domestic product.
Second, the statement of EU's taxation commisioner Lazslo Kovacs that the aim of tax harmonization is to simplify tax collection and make it less costly, is false and does not hold the real arguments. In fact, the cross-national organization of revenue service would deepen the budgetary spending and make it temporary since hiring labor to match the demands of the European Commission regarding tax harmonization pressures would result in public-guaranteed wages outlayed without with almost no effects of gains of productivity.
And third, the proposal of the European Commission that tax collection is ought to be conducted on a Europe-wide basis is a flawed suggestion erasing the real impact of fiscal sovereignity regarding the enforcement of competitive tax rates on labor and capital income and further eliminating the fruits of tax competition associated with individual liberty and the question of privacy.
See also:
Martin Feldstein: Economic Problems of Ireland in Europe, NBER Working Paper No. 8264, May 2001 (link)
The real aggregate tax burden in the EU is very high, both in historical and contemporary perspective. Back in 1980s, German policymakers instituted a 60 percent corporate tax rate. In Sweden, the top individual income tax rate exceeded 90 percent in the early 1980s. After new member state joined the EU, the picture of European economic performance is rather lingering, marred by low output growth, high structural unemployment and high tax rates penalizing the productive behavior.
However, within the EU, there're few examples where competitive pro-growth economic and tax policy significantly helped to boost the economic performance resulted in sound parameters, such as income per capita and wealth created per head. For instance, Ireland set the corporate tax rate at 12,5 percent and has seen a significant inflow of foreign direct investment. Nevertheless, Ireland is now the second wealthiest country in Europe, after Luxembourg according to the GDP per capita. Ireland's tax-to-GDP ratio is 30,8 percent compared to EU27's 37,4 percent. Fiscal sovereignity, the basis that brought the clash of punitive tax rates on corporate and individual income, is the very fundamental source of international tax competition opposed to tax harmonization, where statutory tax rates are set on a cross-national basis.
The fact that the aggregate tax burden of the European economy would increase sharply if tax harmonization efforts were implemented is not the only threat in this respect. Sluggish growth, diminished economic performance of European economies and higher tax rates on productive behavior are certainly among the forefront implications of tax harmonization.
First, high tax burden and output increases are negatively correlated, which means that higher taxes penalize each additional unit of gross domestic product.
Second, the statement of EU's taxation commisioner Lazslo Kovacs that the aim of tax harmonization is to simplify tax collection and make it less costly, is false and does not hold the real arguments. In fact, the cross-national organization of revenue service would deepen the budgetary spending and make it temporary since hiring labor to match the demands of the European Commission regarding tax harmonization pressures would result in public-guaranteed wages outlayed without with almost no effects of gains of productivity.
And third, the proposal of the European Commission that tax collection is ought to be conducted on a Europe-wide basis is a flawed suggestion erasing the real impact of fiscal sovereignity regarding the enforcement of competitive tax rates on labor and capital income and further eliminating the fruits of tax competition associated with individual liberty and the question of privacy.
See also:
Martin Feldstein: Economic Problems of Ireland in Europe, NBER Working Paper No. 8264, May 2001 (link)
Tuesday, August 28, 2007
SLOVENIA, THE MOST TAXED COUNTRY IN THE WORLD
According to Forbes, Slovenia is the most taxed country in the world; way ahead of high-tax jurisdictions.
Thursday, August 23, 2007
DENMARK TO REDUCE INCOME TAX
Tax-news.com reports that:
"The Danish government has announced its intention to cut taxes by DKK10 billion (EUR1.34 billion) per year in 2008 and 2009 in a bid to stimulate the labour market, and improve incentives to work. Under the proposed reforms, announced by the government on Tuesday, the income ceiling for the middle and top income tax brackets will be raised to DKK353,000 per year from DKK304,100, and to DKK381,300 per year from DKK365,000, respectively.
The government is also proposing to raise the employment tax deduction, which is subtracted by all working wage earners, to 4.7% from 2.5%. Some of these tax cuts would take effect on January 1, 2008, with the total tax cut package coming into force on January 1, 2009.
In the same announcement, the Danish government also promised that a broad economic plan for the next eight years would not raise any taxes between now and 2015. The economic package also promises DKK50 billion in extra spending to improve Denmark's welfare system between 2009 and 2018."
Source: Denmark to Cut Income Tax (link)
Despite high tax rates on individual income with the marginal rate of 59 percent, Denmark enjoys a deregulated and relatively flexible labor market compared to the rest of the world. However, the real aggregate tax burden dropped by 0,8 percentage point and is now 47,2 percent of the annual GDP. Tinkering tax brackets instead of real income tax cuts could, in turn, increase compliance instead of reducing the punitive rates on personal income to stimulate labor productivity and ease cost pressures arising from wage-increase claims.
"The Danish government has announced its intention to cut taxes by DKK10 billion (EUR1.34 billion) per year in 2008 and 2009 in a bid to stimulate the labour market, and improve incentives to work. Under the proposed reforms, announced by the government on Tuesday, the income ceiling for the middle and top income tax brackets will be raised to DKK353,000 per year from DKK304,100, and to DKK381,300 per year from DKK365,000, respectively.
The government is also proposing to raise the employment tax deduction, which is subtracted by all working wage earners, to 4.7% from 2.5%. Some of these tax cuts would take effect on January 1, 2008, with the total tax cut package coming into force on January 1, 2009.
In the same announcement, the Danish government also promised that a broad economic plan for the next eight years would not raise any taxes between now and 2015. The economic package also promises DKK50 billion in extra spending to improve Denmark's welfare system between 2009 and 2018."
Source: Denmark to Cut Income Tax (link)
Despite high tax rates on individual income with the marginal rate of 59 percent, Denmark enjoys a deregulated and relatively flexible labor market compared to the rest of the world. However, the real aggregate tax burden dropped by 0,8 percentage point and is now 47,2 percent of the annual GDP. Tinkering tax brackets instead of real income tax cuts could, in turn, increase compliance instead of reducing the punitive rates on personal income to stimulate labor productivity and ease cost pressures arising from wage-increase claims.
MULTINATIONALS, TAXES AND COMPETITIVENESS
Here is a report from Financial Times:
"Multinational companies with US subsidiaries could face huge new tax bills under a law passing through the US Congress. The new measure, known as the Doggett law after the Texas Democrat who proposed it, aims to prevent international companies avoiding US tax when they transfer funds from the US to parent groups via countries with favourable tax treaties, such as the UK and the Netherlands. At present, companies with headquarters in countries that have no US tax treaty, such as Taiwan and Singapore, can avoid a 30 per cent tax on funds transferred from US subsidiaries by setting up a unit in countries with favourable treaties. Congressional Democrats say the legislation is focused on “tax haven hideaways”."
Source: US tax bill set to hit multinationals, Financial Times, August 19 2007 (link)
A new tax hike on multinationals introduced by the U.S. Congressman could seriously hurt job creation and force multinationals to leave the U.S. despite some of the particular competitive advantages of the business environment in the U.S. such as sound access to venture capital. The performance of multinational companies in areas such as value-added and venture formation crucially depends on tax rates hiking capital gains, corporate income and savings. In fact, net direct investment and capital inflows into low-tax and offshore jurisdictions reflect the attractiveness of particular locations to invest and transfer investment funds into the most favorable place with regard to corporate strategies undertaken by multinational companies.
Penalities levied on setting up business units in jurisdictions with non-punitive tax regime, would certainly force capital and investment managers to avoid taxes through unfavorable results such as less job creation as a measure to fight resisting cost pressures caused by the introducing particular tax bills on companies seeking to maximize growth and output in jurisdictions with lower statutory rates on corporate income and private equity.
Nevertheless, taxation of private equity has distorting effects on decision-making where and how to allocate investment resources in particular to maximize the output and return on equity. In fact, there is a numerous evidence that outsourcing benefits outward company performance and provides opportunities to investors and offshore/onshore service supply. Obviously politicians do not know that multinational companies frequently run several business units and that particular domestic markets do not neccessarily offer suitable or attractive access to particular capital and investment funds and that restricting access to international markets could result in a lack-luster performance of multinationals and consequently, in the loss of gains from competitiveness and access to provide liqudity and additional funds to fuel growth and perform the business strategy.
"Multinational companies with US subsidiaries could face huge new tax bills under a law passing through the US Congress. The new measure, known as the Doggett law after the Texas Democrat who proposed it, aims to prevent international companies avoiding US tax when they transfer funds from the US to parent groups via countries with favourable tax treaties, such as the UK and the Netherlands. At present, companies with headquarters in countries that have no US tax treaty, such as Taiwan and Singapore, can avoid a 30 per cent tax on funds transferred from US subsidiaries by setting up a unit in countries with favourable treaties. Congressional Democrats say the legislation is focused on “tax haven hideaways”."
Source: US tax bill set to hit multinationals, Financial Times, August 19 2007 (link)
A new tax hike on multinationals introduced by the U.S. Congressman could seriously hurt job creation and force multinationals to leave the U.S. despite some of the particular competitive advantages of the business environment in the U.S. such as sound access to venture capital. The performance of multinational companies in areas such as value-added and venture formation crucially depends on tax rates hiking capital gains, corporate income and savings. In fact, net direct investment and capital inflows into low-tax and offshore jurisdictions reflect the attractiveness of particular locations to invest and transfer investment funds into the most favorable place with regard to corporate strategies undertaken by multinational companies.
Penalities levied on setting up business units in jurisdictions with non-punitive tax regime, would certainly force capital and investment managers to avoid taxes through unfavorable results such as less job creation as a measure to fight resisting cost pressures caused by the introducing particular tax bills on companies seeking to maximize growth and output in jurisdictions with lower statutory rates on corporate income and private equity.
Nevertheless, taxation of private equity has distorting effects on decision-making where and how to allocate investment resources in particular to maximize the output and return on equity. In fact, there is a numerous evidence that outsourcing benefits outward company performance and provides opportunities to investors and offshore/onshore service supply. Obviously politicians do not know that multinational companies frequently run several business units and that particular domestic markets do not neccessarily offer suitable or attractive access to particular capital and investment funds and that restricting access to international markets could result in a lack-luster performance of multinationals and consequently, in the loss of gains from competitiveness and access to provide liqudity and additional funds to fuel growth and perform the business strategy.
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